Moving Your Business Out of the House
Picking the right time to move production from your home to a plant is one of the most pivotal decisions entrepreneurs face.
Christine White's home-based business had a problem. A good problem, you could say, but a problem nonetheless.
The owner of Scandle LLC was making a few thousand natural candles in a spare room of her house using wax-melting equipment as big as a refrigerator--but she still couldn't keep up with demand. And her home was being overrun by candles and packaging. So she came to the realization that her business had become too big for home sweet home.
"I had to move out because I couldn't get the products out to my customers fast enough with such a small setup," says White, whose firm is based in Corinth, Texas. "I had to start palletizing candles because I couldn't just send out boxes anymore. And shipping companies were charging me more because I was in a residential area."
But simply knowing you should move your business out of the house is not enough. It's all about timing, as picking the right moment to move the assembly line out of the pad and into a plant is one of the most pivotal decisions entrepreneurs face. The wrong choice can make or break a business because opening a factory, however small, can bring with it unforeseen expenses and lots of headaches, says Julie Lenzer Kirk, adjunct professor in innovation and technology entrepreneurship at the University of Maryland, Baltimore County, and CEO of consulting firm Path Forward International.
Indeed, White delayed her move as long as she could. "Going from home-based to renting space and buying larger equipment is really scary," she says. But having her company go from producing a few thousand products monthly with annual sales of $50,000 to producing 10,000 candles every month with projections of $200,000 in revenues this year was worth it.
How'd she do it?
- She first tested the waters by using a Texas contract manufacturer to produce her products, but found she wasn't happy with the quality. And other contractors she priced were just too costly for her fairly thin profit margins.
- Since the real estate market was hurting, she decided to open her own factory and got a reasonable deal on rent for a 2,000-square-foot facility just a five-minute drive from her home.
- Before she signed a rental agreement, she used a spreadsheet to crunch the numbers in order to figure out how much she could afford in overhead, keeping in mind she'd had no real company overhead at home.
- And she used eBay and Craigslist to get low-cost used equipment to make her products, and hired three workers and one intern to help her.
The factory was up and running in March and she pays about $1,000 a month for rent, electricity and internet service. She hit a couple of unforeseen issues, including a leaky roof. She also had to install air-conditioning throughout the space because the candles were not setting up properly during the hot months. "It's definitely been an adventure," she notes.
Kirk offers some challenges to keep in mind, if you're considering this kind of expansion:
- Realize that scaling up from small-batch production to mass production isn't always just a multiplier situation. Most products need to be re-engineered for larger batch sizes and quantities.
- Bear in mind industrial-grade equipment is not the same as what you would find in your home. It is often more complex and has different operating parameters, which can result in a different output.
- Investigate the licensing rules in your area.
- Make sure you have the appropriate quality-control procedures in place.
- Find out if you're required to have more insurance coverage.
Paul Pruett, CEO of The Praim Group, a food consulting company, says some common errors he sees include underestimating lead time when ordering equipment or equipment installations, and improperly ordering and storing ingredients.
If it all sounds too complex, you should consider reaching out for support.
Elyissia Ayn Wassung, owner of 2 Chicks With Chocolate Inc., sought help when she decided to go from cooking up chocolate treats in a Crock-Pot out of her kitchen to producing the treats in a 2,000-square-foot plant in South River, New Jersey.
She read many books that helped motivate her, including "A Good Hard Kick in the Ass: Basic Training for Entrepreneurs" by Rob Adams. And she joined an online entrepreneurial consulting forum called CEO Space, where she is able to take classes on everything from operations to marketing and has a group of advisors to tap into.
"With more space and more equipment, we have been able to streamline operations and increase productivity," she says, adding that the company is expected to bring in $250,000 this year.
Known online as Careerdiva.net, Eve Tahmincioglu is the author of "From the Sandbox to the Corner Office," an in-depth look at top U.S. CEOs and the lessons they learned on how to succeed in business, as well as a career columnist for MSNBC.com.